Four years ago, Alibaba set up a money market fund called Yu'e Bao, where leftover cash from online spending can be stored. Now it has grown to become the world's biggest money market fund with more than $165.6 billion under management, the Financial Times reported.
Yu'e Bao--which translates as "leftover treasure"--has also reportedly overtaken the U.S. government's money market fund at JP Morgan that is worth $150 billion.
According to the report, the fund's rapid growth shows the extent of influence of China's tech firms on people's lives, especially finance.
When Ant Financial, Alibaba's payments affiliate, saw the huge amount of money in customers' accounts that were used for paying bills and other services, the company decided to enter into fund management.
Ant Financial collected the money into a fund, similar to what U.S. and U.K. brokers did with client funds during the 1980s and 1990s, and offered a return for the surplus money with 3.9 percent charge, the report said.
According to Alastair Sewell, head of fund and asset manager ratings at Fitch Ratings, a similar disruption is expected to occur globally, but, to date, they "have not seen similar arrangements from the likes of the Googles and Facebooks of the world."
Peter Alexander, managing director of China consultancy Z-Ben Advisors, said that the fund's value and size have given Ant Financial better leverage with banks, and customers were also attracted that they withdrew their money from the banks and placed it in their Alipay digital wallets.
"Because Ant has so many individual accounts, they are able to have the power to negotiate with banks, and because the duration is very short, they also have high liquidity," Alexander said.
Yu'e Bao continued growing while other money market funds were pressured from low-interest rates. In the U.S., regulatory changes helped JP Morgan's growth as investors move their money from "prime" money market funds to be invested in corporate debt. In recent months, the trend has lessened, but Yu'e Bao's growth was still strong.
According to analysts, the risks from Yu'e Bao's huge fund are minimal since it has no single big investor that can re-allocate funds easily.
"Retail investors generally show a herd behavior, so theoretically they could all redeem at the same time, and in these extreme circumstances there could be a need for asset sales," Li Huang, Fitch's Shanghai-based associate director for fund and asset manager ratings, said.
China's other tech companies have also entered the money market. Licaitong, Tencent's wealth platform, offers money market funds, in partnership with financial institutions. It also offers other wealth management products, with smartphone maker Xiaomi as a partner.